Contango reported that its Galveston Area 277L prospect (His Dudeness) was a dry hole. Total expenditures, including plugging and abandonment costs are expected to be approximately $9.5 million, net to Contango. The well was drilled using the Hercules 253 jackup.
Mr. Peak, the Company's Chairman and Chief Executive Officer, said, "Drilling dry holes comes with the territory of wildcat exploration. That doesn't make dry holes any more palatable, but it does mean they are never a surprise. We now turn our focus to getting our next three Gulf of Mexico prospects permitted and drilled. The permit for our Vermillion 170 (Swimmy) prospect was submitted to the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) on September 29, 2010 and we are hopeful approval will be received prior to year-end. We are in the process of preparing our permits for two additional prospects. We hope to be able to spud all three prospects prior to June 30, 2011. We are also preparing to drill an exploration step-out at our south Texas Rexer #1 well which thus far has performed beyond our expectations.
"Receiving permits to drill and the timely spudding of our prospects is critically important for us to not only grow our Company and create jobs for offshore workers, but also because we are very profitable and can immediately use the associated intangible drilling cost tax deferrals. For example, even at today's level of natural gas prices we are projecting a tax payment of $18 million due to the IRS on December 15th of this year. We have no intention of diluting the quality of our prospects to garner tax benefits, but we have excellent prospects, ample liquidity and are ready to get back to work in the Gulf of Mexico."
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